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Is the Government a family or a Business?

Image from jkienlen.deviantart.com

Image from jkienlen.deviantart.com

We can do without butter, but, despite all our love of peace, not without arms. One cannot shoot with butter, but with guns”
Joseph Goebels

“Guns will make us powerful; butter will only make us fat.”
Hermann Göring

Ok, I think that the title says it all.

I tried to write this as a satire, but when the government announces spending billions on fighter jets, while telling us that we need to save pennies on pensioners, it’s pretty hard to come up with anything more absurd than what they’re already doing. Except when you follow it with their statement that we can afford the jets because the money has been “set aside” in previous years. So this “set aside” will evaporate if we decide it would be better spent on something else – if we saved a few billion by only buying half the number of jets? (I know, I don’t understand. We got a deal for buying in bulk!)

For years now, I’ve always been concerned when people compare a government to a business one moment, then compare it to a family budget the next. A government is neither. It’s a government, and while it’s legimate to compare anything to anything – a government is like a giant blancmanage – at some point, all analogies break down.

When you use the business model, then it’s always good to make a profit. You exist to make a profit. This profit is then reinvested or returned to shareholders, or a combination of both. And, of course, in the family budget model, not making ends meet eventually leads to disaster. So governments should also balance budgets, right?

The trouble is that – neither businesses or families – always have to make more than they spend. In the case, of businesses, there’s often a good case made for borrowing to expand, just as for most families, borrowing to purchase a home is hardly a reckless decision. And families, of course, make decisions that aren’t just about profit. If I own lots of assets, and choose to spend them to finance for my child’s trip round the world or to pay for mother’s operation, then it’s my choice and nobody can talk about my reckless spending. In fact, even if I choose to sell my shares in BHP and purchase a sports car, I still have only my family to answer to. (Unfortunately, I don’t own any BHP shares… Or any assets that we pay for that sports car.)

However, because of the way the economy works, government spending – or saving – is not as simple as a single company or household. Part of every dollar a government spends on something like Health or building classrooms will end up back in the Government coffers through taxation. GST on materials, and income tax from people directly involved is only part of it. When the govenrment cuts a program, and someone is unemployed, this is not just a potential cost to revenue, but also may lead to the need for increased spending. This is pretty much what happened under Fraser – every time they cut spending, it didn’t lead to a balanced budget, just a further blowout until Howard, when Treasurer, got the enviable double of ten percent unemployment coupled with ten percent inflation. (He also left Australia with the highest debt to GDP ratio in our history, including the recent Labor $283 billion)

We’re told we have a spending problem in Australia. Of course, when it was suggested by reputable economists a few months ago that what we actually had was a revenue problem, it wasn’t given the prominence it deserved because neither of the major political parties wants to be seen raising taxes. Tax has been made a dirty word by Abbott’s persistent attack on the Carbon “Tax”, followed by the Mining Companies campaign that suggested they’d stop mining in Australia if we taxed them (and what – start mining somewhere that didn’t have the minerals?).

I’d just like to see some attempt to actually have intelligent discussion about the problems that face Australia, and not have everything reduced to simple slogans and absurd analogies. When Joe Hockey uses phrases like “personal responsibility” it has a moral tone, when applied to health or welfare. However, we don’t hear about “personal responsibility” when it comes to buying jets or building roads – that would be just ridiculous. But it’s equally ridiculous when we apply to many of the areas that the government will be cutting.

The current government paraphrased the American Tea Party when they said that “No country ever subsided its way to prosperity” and quoted it directly with “No country ever taxed its way to prosperity”. There are two things wrong here: First both statements are demonstrably untrue. But the second is what I think is the fundamental problem with Abbott and company. Now that they’ve actually been elected, I’d like to hear what does work, not what doesn’t. I’d like them to articulate how they feel cutting programs and restraint will lead to a more prosperous country. Notice I said, a more prosperous country, not a more prosperous government. Or is an unemployment rate of ten percent and falling wages, but a balanced budget, success in their eyes? I’d like the answers to questions not to include a reference to the Labor Party. (Yes, I realise the only way that the people who try to justify the actions of Abbott can do so, is by changing the subject.)

“They’ll piss on you, and tell you it’s raining”. Best definition of the trickle-down effect I’ve heard.

 

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